How Labour should respond to the Merkel disaster

Update (3/12/11): Looks like I am wrong on Merkel stopping ECB action, and that the promise of the imposition of an austerity treaty may enable a short-term bail out. This is a good thing as it gives breathing space, if it comes to pass. Nevertheless, in the longer term Merkel’s treaty will be disastrous and the British/European Left needs to combat it as best it can.

The Eurozone is sinking fast. I thought it would hold to the New Year, but now I think I was wrong.

The markets seem quiet today, as though they are pausing for breath. My sixth sense is that, come Monday 5th December, there’ll be the beginnings of the end as the big investors re-read Angela Merkel’s speech, realise she is not backing down, and that the European Central Bank will not be riding to their rescue.

Perversely, the end will begin when the markets realise Keynesian support is not forthcoming.

As the chaos and swift, deep recession take hold, Merkel will say that she acted for the German national interest in the short-term, and for the European interest in the long-term. She will push forward undaunted with the drafting of a new treaty under which all EU countries will be held to account for their fiscal rectitude by an unelected organisation which remains effectively under her control.

This organisation will be able to levy fines on countries that are unable to meet their fiscal targets, precisely because the austerity measures imposed in the short term as a desperate attempt to meet those targets militate against growth in the longer term. The fines will worsen the situation.

When Germany’s time comes to miss the targets, the rules will be reinterpreted, as those of the existing Growth & Stability Pact were reinterpreted in 2002, the last time Germany missed its targets.

The poor will suffer. Social unrest will ensue on a scale hitherto unknown.

As this scenario starts to unfold – perhaps in around 72 hours – the British Labour Party is awaking from its Euroslumber long enough to realise that all might not be well.

Shadow Minister Helen Goodman tells us this morning, with a nice line in both condescension and ignorant understatement, that we’ve all been “constantly uncritical of the European institutions”, and that what’s been going on “does suggest a rethink is needed”.

Labour hasn’t got time for a re-think.

If Labour wants to gain any credibility on Europe, and any kind of stable economy to inherit in 2015, Miliband and Balls need to stop shouting from the sidelines about how the Tories are shouting from the sidelines.

Yes, the Tories have abdicated, but with abdication by the Tories comes responsibility on Labour to assume control.

Instead, they should be catching the last flight out to Brussels tonight to work through the weekend with the Party of European Socialists, and whoever they can drag in (Francois Hollande would be a good start) on a joint anti-Merkel statement ready for Monday’s meltdown signs.

This statement should be unequivocal in its short-term support for a Eurobond backed by all members, riding roughshod over Germany’s (historically) understandable but now irrelevant fears of inflation.

Instead of fiscal targets and penalties are the heart of a new constitution should be targets for sustainable growth, employment and income equality, with fiscal measures to attain those objectives left to individual states, and the European Central Bank under the democratic control of the European Parliament.

I’m not confident, sadly, that Miliband and Balls, or the Parliamentary Labour Party in general, yet get their roles as a responsible, active opposition.